Category Archives: Economics

A Grim Forecast

There are a lot of comments on Sam’s post earlier about China and India, but Gerald Hibbs has some cold water to splash on the Chinese’ problem, that I thought I’d move up to post level:

Right, every inch of China is covered with them growing something. Terraced hillsides are standard. As we whisk by on the train you can see them farming the way their grandparents did. Often you see the cliff dotted with caves. What are those? They live there. It is fascinating to watch and incredibly sad.

Meanwhile, government officials talk about how they are lifting a million people a year out of poverty. A million people a year! That is staggering. Even more so when you realize that they are over 1000 years away from lifting everyone in China out of poverty at that rate.

Kids on the farm on making their way to the city and finding it a hard row to hoe — especially since it is technically illegal to move like that without permission. We watched a documentary that followed one kid. Someone else in the village had gone to the city for a year and came home with enough money to get married and buy a house for his new wife. Off this young man — an only son — went where he worked illegally on a high rise construction project and slept in a worker’s dorm with no heat. He eventually went home because he couldn’t take the bitter winter cold.

We already hear of riots everywhere in China. Well, some details and statistics/conjecture leak out from foreign websites. Chinese government officals admitted to about 74,000 in 2004. Many rural people have television and they watch it filled with commercials for stuff they can’t afford (like pretty much everything as the average peasant makes about $150 a year) and modern TV soaps showing spoiled rich young people fighting over the prettiest girl. At the same time there is such a disparity between boy/girl births — especially in rural areas reaching sometimes 120 boys to 80 girls — that a poor (and heaven forbid stupid or ugly) village boy has little chance of marriage. It is made even worse by the fact that women are now getting into college and excelling. Why worse? Well, those boys are even more out in the cold then they were before. The women in China are going to experience a power shift in this generation like no other in history. I hope they live through it. I’ve seen any number of stories about girls kidnapped and sold as “wives.” My own wife was almost kidnapped off the street when she was younger.

How much longer can the condition continue? Especially when the people see the endless corruption. Guanxi, or relationships, are everything. I know one guy whose group paid a $10,000 bribe to be allowed to exploit an oil well his group owned. Someone else paid more, and had better relationship, and they were forced to sell for almost for pennies on the dollar. Now the people with more money and guanxi are running the oil well and getting richer. He lost much of his family’s life savings in that debacle.

I want to be optimistic but the situation is so inherently unstable. Imagine the gleaming cities of 20 years from now with hundreds upon hundreds of millions of peasants knowing they and their children are shut out. Or even worse know that they will know the shame of being a “branchless tree” (Chinese description of a man without a family.) Interesting times indeed. If anyone can give me a reasonable explanation of how this can end well short of a singularity — and molecular manufacturing to instantly provide economic parity — I’d love to hear it.

Fortunately, some kind of singularity-like event is likely to bail them (and the rest of us) out. Unfortunately, given the history of technological solutions, it will bring new problems of its own. The future is likely to be (in the words of the ancient Chinese curse) interesting times.

China and India Agricultural Revolution

‘Industrial Revolution’ is a misnomer. Industry was just a thing to do after agriculture became easier. China and India are about half way through their ‘Agricultural Revolution’. According to the CIA World Factbook, a 45% of the 800 million labor force out of China’s 1.3 billion and 60% of India’s 500 million labor force out of 1.1 billion still work in agriculture. In the US, France and Poland the comparable numbers are 0.7%, 4.1%, and 16.1%. In the next couple of decades, we can expect Chinese and Indian algricultural sectors to achieve 100% labor efficiency improvements putting a total of 350 million people into manufacturing and services which will be a 50% rise. Over the next 100 years, we can expect them to catch up to France and put 96% of their labor forces away from agriculture. These are conservative predictions.

Continue reading China and India Agricultural Revolution

Arson is Zoning by Other Means

From Economist’s top story:

Arsonists certainly have strong motives for starting blazes. Rising incomes have fuelled a construction boom. Demand is high for land near the sea to build second homes. Although Greek law states that builders cannot put up homes on forest land, developers are practised at getting around the rules.

Because Greece still lacks a land registry covering the whole country

Max Population Predicted

The cover story inThe Economist this week predicts that population will peak this century:

Last year the United Nations said it thought the world’s average fertility would fall below replacement by 2025. Demographers expect the global population to peak at around 10 billion (it is now 6.5 billion) by mid-century.

This peak is only temporary. Fertility plotted vs. money income is U-shaped. Poor can’t afford family planning, but the rich want to have kids.

They further opine:

States should not be in the business of pushing people to have babies.

Yes they should. A baby will become a taxpayer and a useful citizen. Zero population growth did far more to hold back development of China and India than Reagan’s (anti-) family planning policies.

We can grow food indoors, reuse our water and get the energy to do it from carbon free sources. The carrying capacity of the Earth is easily one trillion people. At the current rate of waste heat per person, we would be generating only 2% of what we get from the Sun. We could site 72 billion at the density of the Netherlands, 3.8 trillion at the density of Manhattan with the current land area.

Continue reading Max Population Predicted

A Hundred Dollars A Barrel?

I don’t think so, despite Derb’s hand wringing. He relies on this overwrought analysis, which doesn’t have that figure anywhere in it that I can see.

The analyst is mixing up oil prices and gas prices in that scare story. But he also completely ignores alternate sources, such as shale and tar sands, which are in huge supply (larger than crude oil reserves) in places like Colorado and Wyoming, and Alberta, and profitable at thirty bucks a barrel. This effectively puts a ceiling on oil prices in the long term, and the longer prices stay where they currently are, the more and faster those sources will be expanding capacity.

I not only don’t think we’ll have a hundred dollars a barrel next November–I don’t think that we’ll ever do so, in inflation-adjusted terms, at least not for any significant (a few weeks at most, in panicked response to some event) period of time.

More Chinese Froth

China is doing some major tinkering with fiscal policy according to today’s Wall Street Journal. To try to moderate the flow out of bank savings into their stock market, they are decreasing the tax rate on savings from 20% to 10% and increasing the savings interest rate.

This will indeed get people to save more in the banks. But it will also give them more future cash from the lower taxes and higher returns. This may make them more confident about speculating in the stock market. This means that China’s mountain of cash will continue to grow. Here’s a report that China’s savings rate is 55%.

If you think about the combination of pension products (6% to get all the 401k matching seems typical), Social Security (12.4%) and Medicare (2.9%) we are doing a good bit of forced savings. If you add in home equity, most US workers in their prime are socking away 30% if you don’t deduct the debt they’re taking on.

Our population doesn’t have a huge demographic bulge brought about by a one-child policy, industrialization and massive improvements in life expectancy. The upshot is China will have very high savings until the inverted pyramid kids (one kid who is the only kid of two parents who are each the only kids of two grand parents) get to the workforce. They can expect bequests, a healthy mortgage loan market and modern employee benefits. In the mean time, no amount of cajoling from Chinese or American treasury and central banking officials is going to curb the Chinese savings rate much.

The impact means cheap money across the board for another 20 years. According to the CIA World Factbook $180 billion of their savings is going abroad net. Since they get about $65 billion in foreign direct investment, they get to invest almost $250 billion a year abroad.

They have $1 trillion in bank reserves and gold compared to US’s $70 billion. They have about $300 billion in government debt or $1.2 trillion at purchasing power parity (PPP), compared to $10 trillion US. China has a vastly undervalued currency with gross domestic product (GDP) PPP estimated at $10 trillion at about 4 times the official exchange rate which puts their GDP at current fixed exchange rates at $2.5 trillion.

In short, with a floating exchange rate, China would have the world’s second biggest economy. And that is without the benefit of substantial deficit spending, a stock market, consumer credit, a public pension system up to western standards, a health care finance system up to western standards or any of a number of multipliers that the US already has.

In the next few years, we can look forward to China becoming an economic super power and not slowing its growth (10.7%) until it rises from $7700 per capita PPP GDP to that of Poland ($14k, 5.8%) or France ($27k, 2.1%). That is respectively twice and three and a half times what it is today. With four times as many people that’s 2-3 times as big an economy as ours in the next 40 years.

Can the US manage a peaceful decline and start playing the role of junior partner in defense alliances?